You?ve tried to plan ahead for your retirement. You?ve contributed steadily to a 401K plan or built up an IRA. Now, you find yourself struggling with debt. Maybe you lost your job or acquired overwhelming medical bills; maybe you?ve gone through a divorce or made a bad investment. No matter what the cause, the fact is you are now experiencing a financial crisis and are considering filing for bankruptcy protection.
You probably have dozens of questions about the bankruptcy process and its aftermath, and one of the most pressing issues on your mind may be what will happen to your retirement accounts if you file.
Chapter 13 and Your Retirement Accounts
If you are filing Chapter 13, your retirement accounts should play no part in the process at all. Chapter 13 involves creating a plan to make monthly payments to your creditors through the court. This plan will be funded by your ongoing personal income, not your assets, and definitely not your retirement accounts. The funds you have in retirement accounts are protected from your creditors.
Chapter 7 and Your Retirement Accounts
When you file Chapter 7, your approved retirement accounts are considered personal property, and like several other forms of personal property, the bankruptcy laws allow an exemption for your 401K, IRA, or other retirement fund that is not taxable under certain sections of the Internal Revenue Code. In fact, when the new bankruptcy laws were passed in 2005, the protection of retirement accounts expanded significantly.
Unlike other exemptions, there is no cap on the amount of money you can have in approved retirement accounts. You are only allowed to exempt $3,225 or less in value for an automobile, but your retirement accounts are basically unlimited.
There are a few exceptions to retirement exemptions, but these are unusual. If you have any questions, ask your bankruptcy attorney about your personal circumstances.
Should You Borrow from Retirement Accounts to Avoid Bankruptcy?
You may have considered trying to avoid filing for bankruptcy by borrowing money from your retirement accounts. This is not usually a good idea, especially if the debts you have would be discharged through bankruptcy. Unsecured debts, such as credit cards and medical bills, can normally be eliminated if you qualify to file Chapter 7 bankruptcy and they will not return to haunt you. The lack of retirement funds, however, could turn into an ongoing nightmare.
The reality is that you if you borrow from the fund, you could be throwing away your future safety and security for a short-term solution that may not resolve the problem permanently. Is it more important to protect your credit standing now or to protect your financial future?
Your decision may be influenced by your age, how soon you plan to retire, or the type of debts you owe. It is always best to discuss your options with an experienced bankruptcy attorney.
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About the Author: Dee is a full-time writer and blogger with a passion for personal finance, credit repair, bankruptcy, and other money-related niches. She is also a regular contributor at CreditLoan.com.
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Source: http://www.ylxmw.com/can-i-go-bankrupt-without-ruining-my-retirement-plans/
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